"The problems of this company have been ongoing for a while, but they are pretty confined to that toll-road project and will not adversely impact the funding of the overall infrastructure sector," said one debt syndicate banker.

MRCB Southern Link paid coupons due December 23 on a 845 million ringgit (S$276 million) senior sukuk tranche and January 4 on a 25.6 million ringgit term loan.

However, it chose to defer the 10.2 million ringgit coupon on a 199 million ringgit junior tranche. Although payments on the junior tranche are deferrable and cumulative under the bond agreement, the non-payment is a clear indication of financial constraints.

RAM Ratings treated the non-payment as a default and downgraded to D the C3 rating on the 199 million ringgit junior tranche. This rating will remain even if the issuer pays up, to show that a precedence of a default has occurred.

MRCB Southern Link has said it will defer payment for one month, but it also holds the option to defer payments every month.

Credit analysts agreed that the default was unlikely to have a major impact on the overall corporate bond market or the infrastructure bond sector. "After all, that is what a junior tranche is supposed to do - as a buffer against losses in the senior tranches," said one analyst.

Infrastructure financing, particularly from the energy sector, typically makes up a significant portion of total corporate bond issuance in Malaysia. Bonds sold to fund power-generating projects over the last 10 years made up 39 per cent of all 239 billion ringgit such infrastructure issuance.

Tight liquidity Analysts had expected MRCB Southern Link to run into cashflow issues since the government banned collection of tolls at the project in 2012.

The government proposed to buy back the project in August 2012 but, in November, decided to make monthly compensation payments of 11 million ringgit to the company until it completed the acquisition. The acquisition has not materialised.

Meanwhile, the company faces tightening liquidity due to the widening mismatch between a lack of cashflow and the annual repayments on its sukuk, says RAM Rating.

MRCB Southern Link has said it plans to undertake a debt refinancing, but little progress has been made. The completion of that refinancing has now been delayed to March, and the possibility of yet another delay has not been ruled out.

Unless the company successfully ties up its debt restructuring, RAM Ratings expects it to experience a cash shortfall when repayment of the 220 million ringgit term loan is due on January 4, 2018. A default on the loan facility will trigger a cross-default on the senior sukuk.

The issuer is a funding vehicle for the 8.62km Eastern Dispersal Link Expressway in Johor Bahru.